Zerodha, one of India’s leading stockbrokers, saw its revenue reach ₹8,320 crore in the financial year 2024 (FY24), with a profit of ₹4,700 crore. This marks a significant rise compared to FY23, when Zerodha reported ₹6,875 crore in revenue and ₹2,907 crore in profit, according to co-founder and CEO Nithin Kamath.
Unrealised Gains and Safety for Traders
Kamath mentioned that these profits do not account for about ₹1,000 crore in unrealised gains, which will be reflected in Zerodha’s future financial statements. He also pointed out that Zerodha’s net worth is now around 40% of the customer funds it manages, making it one of the safest brokers to trade with.
Risks on the Horizon: Plateauing Profits and Revenue Dip
Despite these solid numbers, Kamath warned of potential risks ahead. “We are already seeing revenue and profit plateau, and we are bracing for a big revenue hit later this year,” he said.
Kamath highlighted several factors that could impact Zerodha’s earnings:
1. SEBI’s True-to-Label Circular: Set to go live on October 1, 2024, this could result in a 10% revenue dip for Zerodha.
2. Changes to Index Derivatives: SEBI recently issued a consultation paper on index derivatives, which Kamath expects will become regulation soon. “Index derivatives make up a large portion of our revenue, and any changes could lead to a 30-50% revenue drop,” Kamath said.
3. Securities Transaction Tax (STT) Increase: Starting from October 1, 2024, the increase in STT could significantly impact futures trading, though the effect on options trading will be minimal.
4. New Demat Account Rules: SEBI has raised the threshold for collecting full Annual Maintenance Charges (AMC) from customers holding ₹10 lakhs or more in their demat accounts, up from ₹4 lakhs. Combined with Zerodha’s removal of account opening fees, this could lead to a notable revenue drop.
5. Changes to Referral Program: Zerodha has had to discontinue its popular referral program due to new guidelines from exchanges, which now allow payouts only to registered Authorised Persons (AP). “This will reduce the number of people referring customers to just a few registered APs, affecting growth,” Kamath noted.
Preparing for Market Uncertainty
Kamath also mentioned the risk of the current bull market ending, which could lead to significant losses. However, he emphasized that Zerodha is well-prepared to weather any downturn, thanks to its lean team, efficient cost management, and strong net worth.
While Zerodha has posted impressive financial results, the company is preparing for potential challenges in the near future, driven by regulatory changes and market conditions.
Zerodha’s revenue may drop by 30-50% in the current financial year (FY25). The company has projected this decline due to new SEBI rules on F&O trading.
Future Outlook
Founder and CEO Nithin Kamath mentioned in a blog post that Zerodha is seeing flat revenue and profit and is preparing for a significant revenue hit in the coming months.
New SEBI Rules Expected Next Quarter
Kamath explained that SEBI’s true-to-label circular for Market Infrastructure Institutions could reduce revenue by 10%. Further, the implementation of SEBI’s consultation paper on index derivatives may cause a 30-50% revenue decline. These rules might come into effect next quarter.
Impact on Revenue
Currently, index derivatives contribute a large portion of Zerodha’s revenue, and any changes will affect the company. Additionally, the Securities Transaction Tax (STT) on F&O is expected to increase from October 1, 2024, impacting futures trading.
Maintenance Charge Reduction
Kamath also noted that Zerodha might scale down its referral program and reduce annual maintenance charges to mitigate the revenue impact.
No IPO Plans for Now
Kamath ruled out the possibility of an IPO anytime soon, citing the unpredictability of revenue in the current market environment. He emphasized the difficulty in estimating revenue growth over the last 14 years.
While the company’s financials are strong, external factors like market conditions and regulatory changes could drastically alter its performance. Kamath stressed that predicting revenue solely from a brokerage business is nearly impossible.
Strong Net Worth
Zerodha has no plans to raise external capital, thanks to its solid net worth built from its profits. Kamath questioned why the company should take on the pressure of investor expectations without a clear strategy for growth.
Facing a Storm
Kamath stated that Zerodha prioritizes customer needs over revenue targets when making business or product decisions. He acknowledged that every broker is affected by these revenue challenges and may need to adjust their business models. With the regulatory changes, market risks, and rising competition, Zerodha faces a difficult period ahead.
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